Indian markets are not generating much confidence for investors amid runaway inflation, a high fiscal deficit, and a possible rise in interest rates, according to Siddhartha Bhaiya of Aequitas Investment Consultancy Pvt.
Inflation has been on the rise and fiscal deficit is being talked at about 6.5%, said Bhaiya, managing director at the firm that manages Rs 2,000-crore assets, told BloombergQuint's Niraj Shah in an interview. Even wage inflation of this scale has not been felt in the economy till now, he said.
Bhaiya's firm, according to its website, is focused on small caps and has returned annualised gains of 31% to investors. But looming rate hikes make him skeptical about the market.
The concerns mark change in the global outlook as Russia's invasion of Ukraine has caused energy prices to spike, amplifying global commodity surge and increasing inflation concerns even as pandemic-hit supply chains are yet to fully recover. That prompted IMF to cut India's growth forecast for FY23.
Commodity Cycle May Continue
In the last 10 years, India has not seen any "significant" investments in commodities, according to Bhaiya, who said even today most most of the funds are "extremely underweight" on the sector. Given the surge in prices in the last two years, he expects more investments in the next four to five years.
Even if there is a shift towards electric vehicles, these cannot be made without using petroleum, he said, citing that petroleum coke, a byproduct of crude refining, is needed to make aluminium that goes into a Tesla.
Not Bullish On PSU Energy Companies
Public sector companies like the Oil and Natural Gas Corp. and Coal India Ltd. are not being allowed to make money, Bhaiya said. "Coal India can be our own Saudi Aramco but it keeps on selling at prices that are at a steep discount to the current market price and the same is with ONGC."
In the PSU energy sector, most companies are forgotten now even though they were very popular around 2007. Most of these stocks have corrected 90-95% over the last 13 years and have now fallen off the radar, he said. "When prices are regulated for energy companies, they are not free-market, and hence, they're never going to make money."
Watch the full conversation below...
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